VIX Futures Signal More Uncertainty Ahead

The CBOE Volatility Index, or VIX, closed below 13 on Friday for the first time in more than a month, but futures on the so-called fear gauge suggest more uncertainty ahead.

The differential between one-month and six-month VIX futures is approaching its largest in the past two years after increasing following the U.S. presidential elections last week, according to Pravit Chintawongvanich, head derivatives strategist at Macro Risk Advisors.

The VIX future that expires next month was at 14.95 Friday, while the one expiring in June was at 19.35. The steep upward sloping nature of the futures levels over time reflects expectations that volatility will rise, despite low current levels.

The VIX is a measure of implied volatility over the next month based on options prices. It typically rises when stocks fall.

Donald Trump's electoral victory has left investors with questions about his policy priorities, which some say could create market turbulence once he takes office. For now, though, the VIX remains calm.

Ben Eisen

VIX

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Canadian Yield Curve Steepens

Longer-term Canadian bond prices decline, again.

They were pulled down by U.S. government bonds, which continued to sell off on fears that inflation is set to rise under a Donald Trump administration intent on cutting taxes and spending more on infrastructure and defense.

Canada's two-year bond yield held its ground, recently trading at 0.683% vs. 0.688% Thursday, while the 10-year yield moved to 1.579% from 1.559%.

-- Sam Goldfarb

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U.S. Lumber Futures Post Weekly Gain

Lumber futures decline, but have posted strong gains on the week, as traders look to the market's prospects as the winter approaches.

The November contract went off the futures board at six-month lows, amid current uncertainty about trade policy for the commodity between the US and Canada, which some investors are hopeful will be attended to in the new year. November lumber futures fell $2.40, or 0.7%, to $320.70 per 1,000 board feet, up 5.2% on the week.

Lumber in the cash markets ranged from $305 to $310 per 1,000 board feet, steady with offers at the mill for the past two weeks, traders say.

Muni-Bond Investors to Know More on Dealers' Cuts

Muni-bond investors will get more information about how much of a cut bond dealers are taking under rules approved by the SEC.

The new requirements force dealers to estimate the amount of compensation they are taking and disclose it to investors during most retail transactions.

The rules will affect about 8,000 deals/day, according to the Municipal Securities Rulemaking Board. Some dealers have expressed concerns the new requirements are burdensome.

-- Heather Gillers

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Investors Bail From iShares Emerging-Market ETF

Investors have pulled $3.54 billion from the iShares MSCI Emerging Markets ETF this month, more than any other equity exchange-traded fund, according to FactSet.

Investors have been ditching emerging markets equities and bonds broadly as the U.S. dollar strengthens following the U.S. presidential elections.

The ETF, known by its ticker EEM, is on track for its biggest monthly outflow in almost three years. EEM is down 6.6% for November.

It's more expensive than competing products, including iShares' own Core MSCI Emerging Markets ETF, known as IEMG, which has seen inflows of $355.6 million in the past month. IEMG is off 6.4%.

Meanwhile, the Vanguard FTSE Emerging Markets ETF, known as VWO, has taken in $928.7 million. VWO has dropped 6%.

-- Asjylyn Loder

Emerging Markets,

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Brazilian Real Should Recoup Losses, UBS Says

The weakening of the Brazilian real following Donald Trump's unexpected election in the U.S. is unjustified, and the currency should recoup losses amid a more favorable domestic economic scenario and limited exposure to the U.S., UBS says.

The bank kept its forecasts unchanged at 3.3 reais to the dollar, in three months; 3.0 reais in six months; and 3.0 reais in 12 months.

The Brazilian real, which lost almost 6% month-to-date, currently trades at 3.39 reais per dollar. Year-to-date, the Brazilian real is still up 16.8%.

Investors have been broadly selling emerging markets currencies as a dollar benchmark index has climbed to its highest in more than 13 years.

-- Luciana Magalhaes

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U.S. Oil Rigs Extend Gains

Oil-rig activity in the US ramped up again, with an additional 19 added in the latest week for a total of 471.

The Baker Hughes data has shown a steady rise since late May when it hit a low point of 316.

Some analysts say drillers and producers are trying to engineer an end to what they see as an unwarranted two-year-old downturn.

Oil prices stand at $45, a level below what most companies say they need to turn a profit. By basin, the Permian remains the hot spot, adding 11 oil rigs to 229. Meantime, natural-gas rigs climbed by 1 to 116.

Dan Molinski

Oil,

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U.S. Rig Count Rising and Broadening

Ahead of the Baker Hughes weekly rig count at 1 p.m. ET, Wells Fargo says recent oilfield numbers suggest the U.S. land market is more active and broader across regions than expected.

"Although the Permian is still the clear leader for rig count gains (+17 rigs since the end of 3Q16), the increase in rig activity so far in 4Q has demonstrated a bit more balance across basins with the horizontal rig count increasing by 9 rigs in the Haynesville since the end of 3Q16 along with a 7-rig increase in the Niobrara, and a 5-rig increase in both the Bakken and Eagle Ford."

NY Fed Now Sees Fourth-Quarter GDP at 2.4%, Up From 1.6%

The New York Fed boosted its fourth-quarter GDP estimate to 2.4%, from 1.6%, according to the latest "nowcast" from the regional Fed bank. The bank said the recent retail sales and housing starts reports drove the increase.

That is still below the estimates from the Atlanta Fed's GDPNow tracker, which has fourth-quarter GDP at 3.6%. Both of those estimates, though, are above the latest consensus of economists surveyed by the Journal. That group sees GDP at 2.1% in the fourth quarter.

Even if the fourth quarter, and second half, is more chipper, the long-term growth outlook is weak. Going by the Journal's surveys, growth is seen at 1.8% this year, 2.2% next year, and 2.3% in 2018.

London Stocks Close Down

This, as commodities prices continue to slip, seeing Fresnillo down 6.9% and other miners closely follow.

Next week looks quieter for corporate results releases, and the early week sees few significant U.K. economic data releases. The end of the week, though, looks busy, with U.K. Chancellor Philip Hammond due to give his Autumn Statement, Thursday; the release of GDP figures Friday; and Italy's constitutional reform referendum on Sunday likely to hold investors' attentions.

Meanwhile, Germany's DAX closes down 0.2% at 10,664.56, led by declines in utility and basic material shares.

David Hodari

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Banks Report 300% Cost Increase From Dodd-Frank

Banks have reported an average 301% increase in compliance costs since the Dodd-Frank Act was enacted in 2010, according to a survey conducted by KBW.

The annual survey comes at a time when some banks are concerned about the money they've spent complying with Dodd-Frank amid renewed Republican efforts to revamp the law next year under a GOP-led Senate and President-elect Donald Trump.

The 87 bank executives surveyed said they've increased their compliance departments by 207% on average since Dodd-Frank was enacted. About half of their compliance-specific employees are focused on the Bank Secrecy Act and Anti-Money-Laundering law while another 27% are focused on compliance to Dodd-Frank.

Drillers Need $60-$64 Oil to Increase Activity

Associated Press

In 2014, oil producers said they needed $79 a barrel on average to make money. Today, that threshold is much lower -- about $53, a barrel on average, said Esther George, president of the Kansas City Fed.

"With the most recent range of profitable prices reported by firms ranging from $40 to $75/barrel, drilling is now profitable for some companies in some places," George said during a conference in Houston Friday.

Even so, producers recently told the Fed that they still need the price of oil -- trading at about $45 a barrel currently -- to rise to $60 or $64 a barrel on average in order to substantially increase drilling activity.

Erin Ailworth

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Ten-Year Yield Hits Fresh 11-Month High

Talk about continued jitters in the bond market.

Renewed selling just sent the 10-year yield to 2.35%, a fresh 11-month high and topping the 2.34% hit in Asian trading.

Yields have further room to rise short-term given the growing sentiment that the super-long cycle of low yields may be ending. While time will tell whether that notion is right, for now people who subscribe to the view of a shift toward higher yields are selling. Long-term debt, big winners in the low-yield cycle, are the most vulnerable.

The 10-year yield is at 2.34%, versus 2.278% Thursday.

Min Zeng

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Reflation Trade May be 'Deeply Wrong' Long Term

Expectations that Donald Trump's election will lead to substantial fiscal stimulus, send inflation higher and cause interest rates to rise have pushed the dollar and U.S. bond yields sharply higher. But risk consultants CheckRisk warn markets are making many assumptions that may not happen.

Long-term investors like pension funds and insurance companies could therefore be "very wrong-footed," the firm says, adding "in the short- to medium-term investors may well get paid for herding, for following the crowd and participating in the reflation theme. The risk is that the theme is deeply wrong in the long-term and investors are being set up for an even bigger fall."

It advises cautiously allocating only some of a portfolio to "the new themes."

Strong Dollar 'Pain Trade' Hits Precious Metals, Emerging Markets

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The rise in the U.S. dollar is creating what Bank of America Merrill Lynch strategists call a "pain trade" as investors pull money from assets that lose out when the buck rises.

Emerging markets debt funds had a record $6.6 billion in net outflows. Funds that invest in emerging markets stocks lost $5.4 billion to redemptions in the week ended Wednesday, the largest outflows in 14 months. Precious metals funds also had $2.7 billion in outflows, the most in three-and-a-half years, according to the Merrill Lynch data.

The dollar has been rising in recent weeks, picking up steam as investors bet on increased growth and inflation under a Donald Trump presidency. But that's playing a role in driving down other asset prices.

Commodities that are priced in dollars typically see their prices fall when the dollar rises against its peers, with gold sinking about 4.5% since the election. Emerging markets have also fallen in part as a rising dollar makes it more expensive to pay back dollar-denominated debt.